Cuadernos de Economía (2020) 43, 391-400

Cuadernos de economía
www.cude.es

ARTÍCULO

Analysis of the Determinants of Indonesia's Exports with ASEAN

Countries and Seven Trading Partner Countries Using the Gravity Model

Velizha Ayu Retnosaria, Akhmad Jayadib

a,b
Department of Economics, Faculty of Economics and Business, Universitas Airlangga, Indonesia

Jel Codes: Abstract: This study aims to analyze the influence of GDP, population, distance, similarity index
F10; of economic size, and exchange rate on Indonesian exports with ASEAN countries and 7 trading
partners (Japan, South Korea, India, China, Australia, New Zealand, Pakistan). This study uses the
Keywords: Exports, Generalized Method of Moment (GMM) method. The results of this study indicate that there is an
gravity models, influence between the independent variable and the dependent variable. This is indicated by the
Generalized Method of variable Indonesian GDP, the GDP of trading partner countries, the population of trading partner
Moment (GMM) countries, the similarity index of the economic size of the two countries has appositive and
significant effect on Indonesian exports, while the variable distance between the two countries
and the Indonesian currency exchange rate against the currency trading partner countries have a
negative and significant effect on Indonesia's exports in the period 2008 to 2017.

Corresponding author : akhmad-jayadi@feb.unair.ac.id

https://doi.org/10.32826/cude.v4i123.401
0210-0266/© 2020 asociación Cuadernos de economía. Todos los derechos reservados
392 Velizha Ayu Retnosari, Akhmad Jayadi

1. INTRODUCTION
Every country needs to have a relationship with other countries
in several important matters relating to state affairs. One of
them is in terms of trade. The deficit of a country in meeting
the needs of its people causes a boost to international trade.
According to Nuradi (2017) international trade can be
interpreted as an activity to increase consumption due to the
increasingly diverse choices of products, so that investment is
higher, commodity prices and prices of production factors
decrease. Trade flows that are increasingly developing and free
have led to the emergence of various forms of international
trade, such as bilateral, regional and multilateral trade which
are expected to create better trade by reducing or eliminating
trade, tariff and non-tariff barriers to gain gains of trade which Figure 1.1 shows that in 2017 Indonesia's trade balance
can increase economic growth through a trade balance surplus experienced the highest surplus since 2012. In 2008 to 2011,
(Indraswati, 2017; Helmar et al., 2018; Cancar, 2018; Armijos- Indonesia's export performance showed an increasing trend
Bravo, 2019; Aydin, 2019; Akkaya, 2019; Maake & Tranos, 2019; until 2012, Indonesia's exports decreased and imports
Auriacombe & Vyas-Doorgapersad, 2019). increased, this is what caused Indonesia's trade balance to
Evidence of the development of free trade in the world with experience deficit.
the creation of various free trade organizations or commonly Indonesia's trade balance deficit in the period 2012 to 2014 was
known as the Free Trade Area (FTA) which emerged in 1993, caused by the decline in the value of exports of several key
namely the European Union (EU) with 17 member countries, commodities, such as oil and gas. In addition, imports for
besides that there is also a free trade agreement in North consumer goods and raw materials as well as capital goods have
American countries. known as the North America Free Trade increased (Sugiharti et al., 2020). In 2015, Indonesia's exports
Agreement (NAFTA), which consists of the United States, could not be increased, because the price of non-oil and gas
Mexico, and Canada (Sembiring et al., 2017; Athiyaman & commodities on the world market fell (Irawan, 2018). Even so,
Magapa, 2019; Dunga & Mafini, 2019; Bonal et al., 2019; Hadi, the trade balance can record a surplus, this is due to
2019). There are also around 109 free trade agreements with government policies that can suppress imports, so that in 2017
at least one country in the Asia Pacific region, but the data has Indonesia's trade balance was recorded at USD 10.3 billion.
not been counted with 148 agreements in the process of
approval, and 189 bilateral agreements out of 257 that are in At the ASEAN level, Indonesia's trade balance surplus is in fourth
the process of approval and preparation. The ASEAN Free Trade place below Malaysia with a surplus of USD 21.85 billion.
Area (AFTA) is the first FTA that was signed in 2002 in the Asia Singapore was recorded as the country with the highest trade
Pacific region (Baldwin and Shafighi, 2020; Brzica, 2018; Afonso balance surplus in the Southeast Asian region, reaching USD
& Silva, 2019; An et al., 2019; Akin Arikan, 2019). 78.59 billion followed by Thailand with a trade balance surplus
of USD 61.65 billion. Meanwhile, the Philippines was listed as
Indonesia
FTA Entry the country with the largest trade balance deficit in Southeast
No. FTA Regional Entry into
into Force
Force Asia in 2017, which reached USD 31.13 billion.

ASEAN Trade
in Good
1 1993 1993
Agreement
(ATIGA)
ASEAN-China
2 2004 2004
FTA
ASEAN-Korea
3 2007 2007
FTA
ASEAN-India
4 2010 2010
FTA
ASEAN-
5 Australia-New 2010 2010
Zealand FTA
Figure 1.2 shows the trade balance of Indonesia's non-ASEAN
No. FTA Bilateral Entry into Force trade partner countries in this study. China has the highest
trade balance when compared to other countries. In 2015 there
Indonesia-
1
Japan EPA
2007 was a very significant increase in the trade balance, reaching a
surplus of 358.84 billion USD. This is due to decreased Chinese
2
Indonesia-
2013 imports compared to the previous year. In 2016 and 2017 the
Pakistan PTA trade balance experienced a decline, due to declining exports
Sources: Directorate General of Customs and Excise, Ministry of and imports of China.
Finance, 2015
Japan's trade balance surplus once surpassed South Korea's,
Table 1.1 shows the development of the ASEAN FTA with other however after 2010 Japan's trade balance experienced a deficit
countries which also applies to Indonesia. With the of up to -3.3 billion USD, this was due to the fact that although
incorporation of Indonesia in ASEAN and its involvement in the Japanese exports increased, Japanese imports also increased.
FTA, the flow of Indonesian trade can also be said to be The deficit occurred because Japan's import demand for crude
increasing. oil and liquefied natural gas increased amid rising world oil
prices. However, Japan's trade balance in 2016 returned
 Analysis of the Determinants of Indonesia's Exports with ASEAN Countries 393
positive due to Japanese exports which were higher than
imports.
South Korea has always experienced a surplus due to increasing
exports, especially for semiconductors, oil, cars. However, in
2017 it experienced a decline due to an increase in imports of
raw materials and capital goods, this was due to an increase in
demand for luxury foreign vehicles. Meanwhile, India and
Pakistan in the period 2008 to 2017 always had a negative trade
balance, this was because the demand for imported goods was
always higher than exports in those countries.
This study aims to analyze what factors affect Indonesia's
exports with ASEAN countries and trading partner countries,
besides this study also wants to prove that even though the UK
trade agreement with the European Union has failed, in other
cases international trade agreements can prove successful.
benefiting both countries in cooperation. This study is
considered important because there is an element of novelty
that has never been done before, for example for the countries
studied, namely ASEAN member countries and the seven
countries that have trade agreements with ASEAN. In addition,
this study also uses the Generalized Method of Moments (GMM)
dynamic panel method where previous studies mostly still used
static panels.
Foreign trade is widely recognized as an important factor for
the economic growth of any country, as there is hardly any
economy that does not have any associated with foreign parties
(Irshad, 2017). The world’s economy is now practically
intertwined and open with the international world, and with
growing international trade the economy of countries is likely
to create an economic association that influences the
countries, and the traffic of services and goods is likely to form
trade among the countries. In this regard, the growing
importance of international trade has been observed among
different economies, as this activity promises to enhance the
welfare of country’s people, and play a pivotal role in bringing
prosperity in the country (Kahfi, 2016). The prevalence of the
economy abroad and at home develops a mutually influential
association among the countries in the process of the exchange
of services and goods between them. Therefore, the export has
emerged as an important component of economic growth, as
this activity can supply the state’s budged through foreign
currencies and income that can be used to enhance the
infrastructure and develops an attractive environment for
investment. Apart from that, most of the countries are also
emphasizing on improving their exports to develop the market
of domestic product, as it plays an important role in increasing
competition, which eventually allows the country to raise their
producing and exploit new technologies in their production
process (Ha, CHUNG, & SEO, 2016).
Besides the huge significance of exports for the economic
growth of countries, many challenges are also found to be
associated with trade policy. According to (Hoang, Truong, &
Dong, 2020), several countries are at the intersection with their
trade policies and are not sure about which direction to follow
for major strategic issues related trade policies. Indonesia is
among the major developing countries that has been facing
several challenges related to their trade policies. Since 2012,
the export value of Indonesia has been decreasing, which is
viewed as the major concern for the country as this decline has
occurred after country made history through doubling the value
of its export over a period of five years in 2011 (Azizatunnishak,
2018). The financial crisis in 2011 was considered as one of the
major causes of a significant decline in the value of country’s
export.
Indonesia is an important member of the Association of South
East Asian Nations (ASEAN), as it is regarded as one of the
strongest economies in the region based on the GDP of 35%, and
a fastest growing economies in the region of South East Asia
(Tampubolon, 2020). The ASEAN region is positioned as the
eight largest economy in the world, and a dynamic market with
having around 640 million consumers. Therefore, AEAN markets
hold huge opportunities for the countries like Indonesia for
accelerating social progress and economic growth through
increasing export. However, the country has been facing
several challenges with respect to exploiting the advantages of
exports in ASEAN countries. As mentioned in the study of
(Rotinsulu, Sumual, & Kumaat, 2019), the export performance
of Indonesia to ASEAN countries has significantly declines to a
deficit or a negative number, which implies that the country’s
exports are lesser than its imports in ASEAN countries. In this
regard, the significant decline in the exports of Indonesia to
ASEAN countries has been observed during the period of 2005
to 2017. Hence, this study aims to identify the factors that can
influence the Indonesia exports to ASEAN countries.
Indonesia has been experiencing a decline in its exports to
different ASEAN countries. The significant decline in
Indonesia’s exports to Singapore has been observed from 2011
to 2019. As mentioned in the Figure 1, the exports of Indonesia
to Singapore has experienced a decline from 18 bn in 2011 to
12 bn 2019 (Trading Economics, 2020). On the other hand, the
exports of Indonesia to Malaysia have showed upward trends,
as their exports averaged $709.95 million from 2014 to 2019,
and it has reached to 972.06 in 2019 (Trading Economics, 2020).
Apart from the ASEAN countries, Indonesia has other important
trading partners like Japan, China, Australia, South Korea etc.
As per the report of (Nusa Daily, 2020),the total export value
of Indonesia to China has reached to $23.3 bn in 2020, as it
increased by 6.4 in comparison with the value of exports in the
previous year. On the other hand, the imports of Indonesia from
China have declined as it has reached to $25.4 bn in 2020.
However, the country is still experiencing a trade deficit with
China of $2 billion. Similarly, the country has also been
experiencing the trade deficit with other countries, which has
become challenging for the country to strengthen its economic
growth through achieving trade balance with ASEAN countries
and other major trade partners.
The determinants of exports have been widely discussed in the
previous literature, however in the context of Indonesia, there
is found to be a lack of evidence regarding the factors that can
influence the country’s export to ASEAN countries and other
major trading partner countries. Therefore, the key rationale
of this study is to fill this research gap by identifying the
determinant of Indonesia’s export to the ASEAN countries and
other seven other trading partners countries. In this regard, the
7 trading partners of Indonesia that are included in this
research investigation includes South Korea, Japan, China,
India, New Zealand, Australia, and Pakistan.
2. LITERATURE REVIEW
The determinants of exports have been comprehensively
discussed in the previous literature. As per the commonly
accepted view, exports are considered as highly crucial for the
economic growth of any country. According to (Sunde, 2017),
exports are viewed as those international trade activities that
offer benefits in terms of increasing domestic demand, which
eventually influences the growth of large industries with
flexible social institutions and stable political structures. The
394 Velizha Ayu Retnosari, Akhmad Jayadi
study conducted by (Monteiro, Soares, & Rua, 2017), argues
that country’s export performance can be determined through
identifying the demand from other countries. Hence, in order
to assess the export performance of any country, it is important
to take all the factors into consideration from both demand and
supply side in order to avoid the element of bias, which usually
occurs while examining the performance of developing
countries on the basis of one side only. Some of the common
factors that are identified in the previous literature are
discussed below:
2.1. Relationship between Gross Domestic Product
and Export
Gross Domestic Product (GDP) is widely recognised as one of
the most important determinants of export, which refers to the
total value of final goods and services that have been produced
by the factors of production in a certain time period in a
country (Muda et al., 2020; Bomani, et al.,2019; Adle,&
Akdemir,2019; Antoni et al., 2019; Bello,& Steyn, 2019;
Adanali, & Mete, 2019; Adell et al., 2019). The amount of GDP
can show the size of a country's economy, both exporting and
importing countries. The GDP of a large exporting country
indicates the greater the country's ability to produce and export
to other countries (Mahadika, Kalayci, & Altun, 2017). A large
importing country GDP indicates a large importing community
income, a large income can have an impact on the large
demand for imported commodities, so that the GDP of the
importing country can also increase exports in exporting
countries (Cora & Wen, 2020).
2.2. Relationship between Distance and Export
The geographic distance of the capital between the two trading
partner countries is an important indicator of the export
performance of countries. According to (Murphy-Braynen,
2019), distance can be interpreted as an obstacle in conducting
international trade because distance can present
transportation costs in international trade. Similarly, in
accordance with the study of (Handoyo & Permata, 2019),
distance can be seen from two sides, namely on the cost of
service which is the cost for each shipment of goods and on the
side of value of service which is the value of the commodity
itself. Distance has a negative relationship with international
trade because the farther the distance between the two
countries, the higher the transportation costs that are charged
so that the price of goods will be higher and can reduce the
demand for these goods (Baker & Yuya, 2020)
2.3. Relationship between Population and Export
The population of a country can affect the trading activities of
a country. The higher the population of a country, the higher
the demand for goods in that country (Baker & Yuya, 2020). The
population can be seen from the supply and demand side, if on
the supply side what happens is when the population of the
exporting country increases, the productivity of domestic goods
and services will also increase so that the supply will also
increase and then what happens is the demand for these
products will decrease. and have an impact on the decline in
trade. When viewed from the demand side, when the
population of the importing country increases, the demand for
goods and services from the exporting country will increase so
that it can increase trade (Kusumawardani & Mubin, 2019).
2.4. Relationship between Index of Equity in
Economic Size and Export
The similarity in economic size index can have a positive effect
on trade, because countries that have almost the same
economic size will trade more (Esquivias et al., 2017). Another
finding in the study of (Fosu, 2019),explained that if two
countries that have almost the same economic size can cause
greater intra-industrial trade, this is also influenced by the
ratio of the same labor to capital and the size of the economy
of the trading partner countries. Moreover, it has been argued
that most world trade, especially between industrialized
countries, is a product exchange which includes intra-industrial
trade.
2.5. Relationship between Exchange Rate and
Exports
Exchange rates can affect the price of a domestic good and
service against the price of foreign goods and services. The
exchange rate is defined as the price of a country's currency
when exchanged for another country's currency (Baker & Yuya,
2020). Exchange rates are categorized into two types, namely
real exchange rates and nominal exchange rates. The real
exchange rate is defined as the domestic price of goods
between two domestic market players who trade their products
in another country, while the nominal exchange rate is defined
as the relative price of the currencies of the two countries
(Cora & Wen, 2020), As per the same study, the exchange rate
will continue to fluctuate so that it can affect the trade
balance. Moreover, when the value of the currency appreciates
(increases relative to the currencies of other countries), the
goods produced in that country become more expensive, while
foreign goods become cheaper, so imports will increase. On the
other hand, when the value of the currency depreciates, the
goods produced in that country is likely to be cheaper while
foreign goods is likely to be more expensive, so that it will
increase the exports. According to Narayan and Nguyen (2016),
exports of a country will experience a decline if the exchange
rate of the country's currency against the currencies of trading
partners appreciates.
3. THEORETICAL BACKGROUND AND HYPOTHESIS
DEVELOPMENT
3.1. International Trade Theory
International trade theory is a theory that examines the level
of dependence of a country with other countries. This theory
analyzes trade in goods, services, and payments between one
country and another (Jones, 2018). A special policy was made
to regulate this trade for the welfare of the countries involved,
because the economic dependence between these countries
will also affect and be influenced by political, social, cultural,
and even military relations. The theory of international trade,
apart from studying international trade, also examines
international trade policies, the foreign exchange market,
balance of payments, and macroeconomics in the open
economy (Feenstra, 2018). As per the concept of international
trade theory, irrespective of the fact that country holds an
absolute advantage over other, the country can still attain
benefits from the specialisation. The theory of international
trade offer explanation for the international trade patterns and
the sharing of gains from trade. This theory signifies the
importance of liberal trade for the economic growth of the
countries.
3.1.1. Theory of Comparative Advantage
According to (Moloi & Marwala, 2020), the ability of any
economy to produce certain type of services or goods at a lower
opportunity cost in comparison with its other trading partners
is regarded as comparative advantage. The theory of
comparative advantage introduces the concept of opportunity
cost as an important component for analysis in making a
selection among different options for production. Moreover, in
accordance with the theory of comparative advantage, if a
country is less efficient at producing both commodities than
other, but is still able to conduct trade that can benefit both
countries, then the first country can specialize in producing and
 Analysis of the Determinants of Indonesia's Exports with ASEAN Countries 395
exporting commodities that have less absolute loss and import
commodities that have less absolute loss (French, 2017).
Moreover, the comparative advantage theory signifies that
specialisation in accordance with the comparative advantage is
a prerequisite for exploiting benefits from trade. Therefore, any
applicable interference with this process like support from the
government to industries in which a country can attain natural
comparative advantage can reduce these benefits (Fan, Li, &
Pan, 2019).
3.1.2. Absolute Excellence Theory
Smith in 1776 said that trade between the two countries was
based on absolute advantage. When a country is more efficient
at producing a commodity than other countries, that country
can benefit from specializing in producing commodities that
have an absolute advantage (Dean et al., 2020). Thus, the
resources owned by the two countries can be utilized in an
efficient manner so that the output of the two commodities
produced will also increase. The increase in output can be a
measure of the profit from specialization in production for the
two trading countries. By trading, the total output of all people
in a country can be maximized.
Table 2.1 Absolute Advantage
USA England
Wheat (sack/work 6 1
hours)
Cloth (meter/work 4 5
hours)
Source: Dean et al., (2020)
Table 2.1 explains that in one working hour the United States
can produce six sacks of wheat and the UK only produces one
sack of wheat. In other cases, in one working hour the United
States can produce four meters of cloth and Britain can produce
five meters of cloth. Thus, it can be concluded that the United
States has an absolute advantage in producing wheat compared
to Britain, while Britain has an absolute advantage in producing
fabrics when compared to the United States.
3.1.3. Modern Trade Theory
Swedish economists named Hecksher and Ohlin were the first
to introduce this modern international trade theory, the theory
is used to explain the theory of international trade which has
not been explained in previous international trade theories.
This theory explains that differences in production factors
owned by each country can influence the difference in the
opportunity cost of a product from one country to another, so
that this will lead to international trade.
The basic concept of the Heckscher-Ohlin theory is if the
commodity being traded is a collection of factors (land, labor,
and capital). The mathematical model for the case of two
countries (home and foreign), two goods (computers and
shoes), and two factors (capital and labor) was developed by
Samuelson in the year 1941 so that it is also known as the
Heckscher-Ohlin Samuelson (HOS) model. The basic
assumptions in the HOS model are the same cross-country
technology, the same tastes and homotheties across countries,
different factor endowments, and perfect competition (free
trade in goods, but not factor trading).
In Figure 2.1, it is explained that on the left side there is an
indifference curve for the two countries. It is assumed that if
country 1 is a country with abundant labor, X is a sign for
commodity x with L-intensive goods, then it can be seen in the
figure that the production line for country 1 is more inclined on
the x-axis. In country 2, which is assumed to be a country with
abundant capital, Y is a sign for commodity y with K- intensive,
then it can be seen in the figure that the production boundary
line of country 2 is more inclined on the y-axis.
The H-O theory assumes that the two countries face the same
indifference curve because they have the same tastes. In the
indifference curve 1 is tangent to the production boundary line
of country 1 at point A and the production boundary line of
country 2 at point A '. This point represents the equilibrium
point in production and consumption in the absence of trade or
PA <PA 'which indicates if country 1 has a comparative
advantage over goods X and country 2 has a comparative
advantage on goods Y.
In Figure 2.1 it can be seen that country 1 focuses more on
producing commodity X and country 2 focuses more on
producing commodity Y. Each country will produce until it
reaches point B in country 1 and point B 'in country 2 so that it
can intersect with the relative price line in PB point. Country 1
will export commodity X to get commodity Y and consume it at
point E, while country 2 will export commodity Y to get
commodity X and consume it at point E'.
4. RESEARCH METHODOLOGY
In following study, econometrics analysis was conducted which
means the research framework and research design of the study
was qualitative research design. The aim of the study was to
empirically investigate determinants of Indonesia’s with ASEAN
countries and seven trading partner countries using the gravity
model. The data of ASEAN countries and seven trading partners
including Singapore, Malaysia, Thailand, the Philippines,
Myanmar, Brunei Darussalam, Vietnam, Laos, Japan, South
Korea, India, China, Australia, New Zealand, and Pakistan, was
collected for the period of 2008 to 2017. Meanwhile, the data
was collected from World Bank, UN Comtrade (United Nation
Commodity Trade), and CEPII (Center d'Études Prospectives et
d'Informations Internationales).
Furthermore, for empirical analysis, multiple ordinary least
square (OLS) was a preferable method but due to the fact that
following study consisted time series data with multiple cross-
sections which made the data panel data. Hence, simple
regression was not applicable over the type of data but rather
panel regression was to be used for the empirical analysis.
However, econometrics analysis the problem of endogeneity
prevails usually, it is not possible for the conventional
statistical models to account for the endogeneity problem
(Phillips, and Han, 2019). Hence, under such conditions,
scholars prefer to move forward to the generalized method of
moments (GMM). It is because, the GMM model is found to be
more robust than maximum likelihood (ML) since it uses specific
moments of the random variables rather than whole
distribution (Luck and Wolf, 2016). Similarly, following study
also involved complex level econometric models and panel
data, where probability of having endogeneity problem and
violation of assumptions was inevitable, hence GMM dynamic
panel model was being used for the econometrics analysis.
Meanwhile, the equation of the GMM dynamic panel model is as
follows
𝐸𝑋𝑃𝑖𝑡 = 𝛼𝐸𝑋𝑃𝑖𝑡−1 + 𝛽1 𝑋𝑖𝑡 … … … … . . +𝛽1 𝑋𝑖𝑡−1 … … … … … + 𝜋𝑖
+ 𝛾𝑖𝑡
Where; 𝑖 = 1, … … … , 𝑁 𝑎𝑛𝑑 𝑡 = 2, … … … , 𝑇
𝐸𝑋𝑃𝑖𝑡 Exports of the country 𝑖 at the time 𝑡
𝛼𝐸𝑋𝑃𝑖𝑡−1 Exports of the country 𝑖 at the time 𝑡 − 1
396 Velizha Ayu Retnosari, Akhmad Jayadi

𝛽1 𝑋𝑖𝑡 … … .. Other variables of country 𝑖 at the time 𝑡 value of 510 billion USD and a maximum value of 1,015 billion
USD. The gross domestic product of trading partner countries
𝛽1 𝑋𝑖𝑡−1 … … Other variables of country 𝑖 at the time 𝑡 − 1 has an average of 1,260 billion USD with a standard deviation
𝜖𝑖𝑡 = 𝜋𝑖 + 𝛾𝑖𝑡 fixed effects error terms decomposition of 2,398 billion USD and a minimum value of 5.4 billion USD and
a maximum value of 12,237 billion USD. The population of
The analysis model used in this thesis is a gravity model using trading partner countries has an average of 210 million people
the generalized method of moment panel data regression with a standard deviation of 420 million people and a minimum
method. Gravity Model is a model used to analyze export value of 379 thousand people and a maximum value of 1.386
relations but with a different geographical location. The model billion people. The distance between Indonesia and trading
used in this thesis refers to the gravity model that has been partner countries has an average of 3.71 thousand kilometers
modified in previous studies. The gravity model is a model of with a standard deviation of 1.96 thousand kilometers and a
international trade which states that trade between the two minimum value of 886 kilometers and a maximum value of 7.79
countries can be positively influenced by the GDP of the two kilometers. The exchange rate of the Indonesian currency
countries and is negatively affected by the distance between against the currencies of trading partner countries has an
the two countries that conduct the trade. In international average of 2,526.22 rupiah with a standard deviation of
trade, the variable mass of objects is replaced by GDP, while 3,600.12 rupiah and a minimum value of 0.42 rupiah and a
the distance variable is defined as the distance from the two maximum value of 10,694.11 rupiahs. The similarity index of
countries (Susetyo, 2017). The gravity model has been used in economic size between Indonesia and trading partner countries
various sectors such as Foreign Direct Investment (FDI), has an average of -1.60 with a standard deviation of 0.98 and a
migration and various other sectors related to international minimum value of -3.99 and a maximum value of -0.71.
trade and is used as a tool to analyze free trade. The equation
of the gravity model is as follows: 5.2. The Results of Identification of Dynamic Panel
Regression (Generalized Method of Moment)
This study aims to analyze the effect of GDP, population,
Tij =A x Yi xYj /Dij
distance, economic size equation index, and exchange rate on
Tij is the value of trade between country i and country j, Yi is Indonesia's exports with ASEAN countries and seven trading
the GDP of country i, Yj is the GDP of country j, Dij is the partners, which was conducted in the period 2008 to 2017. This
distance between country i and country j. This equation says research uses the generalized method of moment (GMM)
that three things determine the volume of trade between two method. because the data used is combined data, namely time
countries, namely the size of the GDP of the two countries and series and cross section. The data in this study are processed
the distance between countries, trade is directly proportional using Microsoft Excel 2010 and Stata 13 software.
to the GDP of the two countries and inversely proportional to
Table 4.2 GMMSystem Estimator
distance (Krugman, 2011).
Variables Coef P-value
5. RESULTS AND DISCUSSION L.X 0,504*** 0,000
Yi 0,047*** 0,003
5.1. Data Analysis Yj 0,436*** 0,000
The purpose of this study was to analyze the effect of GDP, Popj 0,040*** 0,000
population, distance, economic size equation index, and Dist -0,700*** 0,000
exchange rate on Indonesia's exports to ASEAN countries and 7 SS 0,323*** 0,000
trading partners (Japan, South Korea, India, China, Australia, Kurs -0,026** 0,017
New Zealand, Pakistan). conducted in the period 2008 to 2017. AR (1) 0,155
AR (2) 0,287
Table 4.1Descriptive statistics Sargan Test 0,000
Variabl Total Mean Standard Min Max
es Observa Deviatio
Hansen Test 0,996
tion n Hansen Test (GMM) 0,949
Export 160 6.6 7.3 3.9 Juta 33,7 Hansen Test (DiffGMM) 0,993
billion billion USD billion Hansen Test (IV) 0,994
USD USD USD
GDPi 160 822billio 161billio 510billio 1.015bill Hansen Test (DiffIV) 0,734
n n n ion Source: STATA 13, 2019 Output Results
USD USD USD USD Note: The regression estimate shows a significant *** below
GDPj 160 1.260bill 2.398bill 5.4billio 12.237bi
ion ion n llion level 1% (α= 0.01), ** significantly below the level 5% (α = 0.05)
USD USD USD USD
Populat 160 210millio 420millio 379thou 1.386bill There are 6 variables used in the gravity model in this study,
ion n n sand ion namely the variables (GDP of country i in year t), (GDP of
Distribu 160 3.71thou 1.96thou 886 7.79thou country j in year t), (geographic distance between country i to
tion sand sand sand country j), (population of country j in year t), (The similarity in
Exchang 160 2,526.22 3.600.12 0.42 10,694.1 the size of the economy between country i and country j), (The
e Rate Rupiahs Rupiahs Rupiah 1 exchange rate between country i and country j in year t).
(Kurs) Rupiahs
SS 160 -1.60 0.98 -3.99 -0.71 Table 4.2 shows the estimation results that the gravity model
Sources: UN Comtrade,World Bank, CEPIIdatabase data processed. can explain Indonesia's exports from the export side by using
the GMM sys method. In order to interpret the results of this
In table 4.1, you can see descriptive statistics from the data on
method, it must be ensured that the value of each parameter
the variables used in this study for the period 2008 to 2017.
used in the model can be estimated statistically.
Indonesian exports have an average of 6.6 billion USD with a
standard deviation of 7.3 billion USD and a minimum value of
3.9 million USD. and a maximum value of 33.7 billion USD.
Indonesia's gross domestic product has an average of 822 billion 5.3. Proof of Hypothesis
USD with a standard deviation of 161 billion USD and a minimum
 Analysis of the Determinants of Indonesia's Exports with ASEAN Countries 397
The hypothesis of this study states that the gravity equation
can explain Indonesia's exports with 7 trading partner countries
as indicated by the variable GDP of Indonesia, GDP of trading
partner countries, population of trading partner countries, the
size of the economy of the two countries has a positive and
significant effect on Indonesian exports, while for the variable
distance between the two countries and the exchange rate of
the Indonesian currency against the currencies of trading
partner countries has a negative and significant effect on
Indonesia's exports in the period 2008 to 2017. This hypothesis
is acceptable, because it is evident from the results of the
analysis in table 4.2 that Indonesia's GDP, the GDP of trading
partner countries , the population of trading partner countries,
the similarity in the size of the two countries' economies has a
positive and significant effect on Indonesia's exports, which
means that when the GDP of the two countries, the population
of trading partner countries, and the equal size of the
economies of the two countries increase, Indonesia's exports
will also increase. Meanwhile, the distance between the two
countries and the exchange rate of the Indonesian currency
against the currencies of trading partner countries have a
negative and significant effect, which means that if the
distance and exchange rate of the Indonesian currency against
the currencies of trading partner countries increases, it will
reduce Indonesia's exports to trading partner countries.
5.4. Discussion
Based on economic theory, trade (exports and imports) is one
of the keys to a country's economic growth, in addition to
consumption, investment and government spending.
Historically, economic growth in developed countries has been
supported by export growth so that these countries can control
the share of world exports. In line with this, the government
has determined exports as one of the locomotives of Indonesia's
economic growth. For the Indonesian export target to be
evaluated and the government to formulate efforts to increase
exports, analyzing the factors that can affect Indonesian
exports is very important.
Based on the problem formulations and hypotheses previously
described, the aim of this study is to analyze the effect of GDP,
population, distance, economic size equation index, and
exchange rate on Indonesia's exports with ASEAN countries and
7 trading partners (Japan, South Korea, India, China, Australia,
New Zealand, Pakistan) which was conducted in the period 2008
to 2017. This study used the generalized method of moment
(GMM) method because the data used were combined data,
namely time series and cross section. The use of dynamic panels
is preferred over static panels, because in this research data
there is still endogeneity, which means that the independent
variable data used has a correlation with errors in the previous
year. Meanwhile, static data panels cannot solve the
endogeneity problem.
5.4.1. The Relationship between Gross Domestic
Product and Export
Based on table 4.2, it can be seen that Indonesia's GDP shows a
positive and significant value, which means that Indonesia's
trade against trading partners will increase in intensity with the
increasing size of the Indonesian economy. When there is an
increase in Indonesia's GDP by 1%, Indonesia's exports to trading
partner countries will increase by 0.047%, assuming other
variables are considered constant. These results are in
accordance with the gravity model which shows that a country's
national income can affect the country's production capacity,
so that it can export to other countries. These results are also
in accordance with research conducted by Chakravartya and
Chakrabarty (2014), Narayan and Nguyen (2015), Carporale and
Sova (2015), Yuniarti (2007), Abidin and Sahlan (2013), they
state that the GDP of the exporting country positive with
exports, because the higher GDP of the exporting country shows
the ability of the country's productivity.
The GDP of trading partner countries shows a significant and
positive value. This means that if there is an increase of 1% of
the GDP of trading partner countries, there will be an increase
in Indonesian exports of 0.436%, assuming the other variables
are considered constant. This result is in accordance with the
gravity model which shows that high national income of trading
partner countries is expected to cause consumers of trading
partner countries to buy goods from exporting countries,
thereby increasing imports from exporting countries.
5.4.2. The Relationship between Distance and Export
The distance variable has a coefficient value that matches the
gravity equation model. The negative sign on the coefficient
value means that trade will decline when the geographic
distance between the two countries is further away because
distance is a variable that represents the cost of transporting
goods to the destination country. there is an increase in the
geographical distance between Indonesia and trading partner
countries by 1%, there will be a decrease in Indonesian exports
by 0.700% assuming other variables are considered constant.
5.4.3. Population Relationship with Exports
A large population can indicate a large market potential as
well. So that the population of importing countries can affect
the number of goods to be exported by Indonesia, the higher
the population of the importing countries, the demand for
goods and services to be exported in that country will also
increase (Salvatore, 2014). The coefficient value is positive and
significant in the results of this study explain that the increasing
population of trading partner countries will also increase
Indonesia's trade on the export side to its trading partner
countries. When there is an increase in the population of
trading partner countries by 1%, there will be an increase in
Indonesian exports by 0.040%, assuming other variables are
considered constant.
5.4.4. The Relationship between the Index of
Similarity in Economic Size and Exports
In the similarity index variable, the size of the economy shows
a positive and significant coefficient value. When there is an
increase in the equal size index of the economy between
Indonesia and trading partner countries by 1%, there will be an
increase in Indonesian exports by 0.323%, assuming the other
variables are considered constant. The results of this regression
imply that more trade flows will be in countries with relatively
the same size of the economy, this is in accordance with the
theory which states that countries with almost the same
economic size will trade more (Helpman and Krugman, 1985;
Ilyas et al. al., 2017).
5.4.5. The Relationship between Exchange Rate and
Export
The negative coefficient value is significant in the exchange
rate variable between Indonesia and trading partner countries,
because if there is an increase in the rupiah against the
currencies of trading partner countries by 1%, there will be a
decrease in Indonesian exports by 0.026%, assuming other
variables are considered constant. These results are in
accordance with the theory which states that when the rupiah
currency appreciates against the currencies of trading partner
countries, the goods and services produced by Indonesia
become expensive and goods produced by other countries
become cheap so that export demand for Indonesian goods will
decrease (Salvatore, 2014).
6. CONCLUSION AND IMPLICATIONS
398 Velizha Ayu Retnosari, Akhmad Jayadi
6.1. Conclusion
Based on the descriptions that have been explained in the
previous chapter and also the empirical data that has been
analyzed, it can be concluded if this research is in accordance
with the gravity model equation shown by:
1. In the period 2008 to 2017, Indonesia's Gross Domestic
Product (GDP) and GDP of trading partner countries proved
to have a positive and significant effect on Indonesia's
exports on the export side. Indonesia's high GDP means that
Indonesia can produce according to market demand, so
that it can export to other countries. High GDP of trading
partner countries is expected to cause consumers of
trading partner countries to buy goods from exporting
countries, thereby increasing imports from exporting
countries.
2. The geographical distance between Indonesia and its
trading partner countries is proven to have a negative and
significant effect on Indonesian exports on the export side.
This is because the further distance will increase the cost
of transportation, so it will not encourage it to occur.
3. The population of Indonesia's trading partner countries is
proven to have a positive and significant effect on
Indonesia's exports in the period 2008 to 2017. The high
population of trading partner countries illustrates high
market potential, so this can increase Indonesia's exports
to trading partner countries.
4. The similarity index variable in the size of the economy
between Indonesia and its trading partner countries is
proven in the period 2008 to 2017 having a positive and
significant effect on Indonesian exports on the export side.
This means that the flow of Indonesian trade will be
dominated by a country with an economy that is relatively
the same as Indonesia.
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